Execution of significant agreement

Polish Energy Partners S.A. (“Company”) hereby informs that on August 28, 2009, an agreement for the delivery of biomass (“Agreement”) was executed on behalf of the Company with Elektrownia Połaniec S.A. – Grupa GDF Suez Energia Polska (“Customer”).

The Agreement will be ultimately performed by a newly-incorporated subsidiary of the Company, namely, Grupa PEP – Biomasa Energetyczna Wschód Spółka z ograniczoną odpowiedzialnością (“GPBE Wschód”).

Pursuant to the Agreement, GPBE Wschód will provide the Customer with the supply of straw pellets with the quantities of 60,000 tonnes per annum starting from January 1, 2012, and 5,000 tonnes in the period from September 1, 2011 through December 31, 2011. The Agreement was executed for definite term from January 1, 2011 through December 31, 2017.

GPBE Wschód may be required to pay liquidated damages to the Customer in the event of a failure to supply pellets in the quantities stipulated in the Agreement. Liquidated damages will amount to 10 % of the value of pellets not delivered to the Customer.

Additionally, GPBE Wschód will be required to pay liquidated damages to the Customer in the event that the Agreement is terminated for any reasons within the control of GPBE Wschód, the liquidated damages amounting to (i) PLN 25,000,000.00 in the first year of the Agreement’s term, (ii) PLN 21,875,000.00 in the second year of the Agreement’s term, (iii) PLN 18,750,000.00 in the third year of the Agreement’s term, (iv) PLN 15,675,000.00 in the fourth year of the Agreement’s term, (v) PLN 12,500,000.00 in the fifth year of the Agreement’s term, (vi) PLN 9,375,000.00 in the sixth year of the Agreement’s term, and (vii) PLN 6,250,000.00 in the seventh year of the Agreement’s term.  Upon transferring to GPBE Wschód the rights and obligations under the Agreement, the Company will be required to provide surety for the obligations of GPBE Wschód regarding the payment of liquidated damages referred to in this paragraph.  The payment of liquidated damages excludes the Customer’s right to claim any additional damages.

Simultaneously, the Customer may be required to pay liquidated damages to GPBE Wschód in the event in the event of a failure to accept pellets in the quantities specified in the Agreement. Liquidated damages will amount to 10 % of the value of the supplied pellets not accepted by the Customer.  Additionally, the Customer will be required to pay liquidated damages to GPBE Wschód in the event that the Agreement is terminated for any reasons within the control of the Customer Wschód, the liquidated damages amounting to (i) PLN 25,000,000.00 in the first year of the Agreement’s term, (ii) PLN 21,875,000.00 in the second year of the Agreement’s term, (iii) PLN 18,750,000.00 in the third year of the Agreement’s term, (iv) PLN 15,675,000.00 in the fourth year of the Agreement’s term, (v) PLN 12,500,000.00 in the fifth year of the Agreement’s term, (vi) PLN 9,375,000.00 in the sixth year of the Agreement’s term, and (vii) PLN 6,250,000.00 in the seventh year of the Agreement’s term, provided, however, that the Customer may be exempted from the obligation to pay liquidated damages in the event of purchasing the production facility of GPBE Wschód at the price equal to liquidated damages.  The payment of liquidated damages excludes the right of GPBE Wschód to claim any additional damages.

The estimated value of the Agreement, calculated as the aggregate amount of revenues during the entire term of the Agreement is PLN 156,037,500.

Due to the fact that the aforementioned agreement value exceeds 10% of the Company’s equity, the Agreement has been considered to be a material one.

The project involving the supply of straw pellets for power industry is based on the legal requirements that impose the obligation to consume specific volumes of the so-called agricultural biomass on energy producers that use bio fuels and fossil fuels.

The Company decided to commence operations related to the supply of agricultural biomass in response to the increasing market demand for agricultural biomass combined with the continued market undersupply.  In the majority of cases, the Polish energy sector uses ash coal boilers [??węglowe kotły pyłowe].  Pellets were selected as the best form of biomass combustion for many reasons, and in particular die to low transportation costs, easy internal transports and very good conditions of coal combined combustion.

In order to perform the Agreement, in Q3 2011 GPBE Wschód will open a straw pellet manufacturing facility in the South-East region of Poland.  The facility will be the third production facility of that type operated by the capital group of the Company. In 2009, the production facility in Sępólno Krajeńskie has been opened to provide supplies mainly for Dalkia Łódź.  In Q4 2010, the production facility in Ząbkowice Śląskie will be commissioned and the pellets produced by the facility will be supplied mainly for the entities of EDF Polska. The Company plants that upon the commissioning of the three production facilities, starting from 2012, the total revenues on the sale of straw pellets will amount to PLN 65 up to 70 million per annum with the production capacity of approx. 150,000 tonnes.  The sales are based on long-term agreements concluded with EDF Polska, Dalkia Polska and GDF Suez Polska for the total of 140,000 tonnes plus in 2012.  The strategic ambition of PEP is to become the market leader in the supplies of energy biomass for large, vertically integrated power plants in Poland by 2012.

Due to the fact that the agreement value exceeds 10% of the Company’s equity, the agreement has been considered to be a material one.